Lapavitsas on Grexit

by Dirk Ehnts, Econoblog101

I have recently reviewed the book by Heiner Flassbeck and Costas Lapavitsas, who is a member of Syriza, for the International Journal of Pluralism and Economics Education.

The book review, which can be downloaded for free, was very interesting because it merged political economy with economics. The authors argued that Greece does not hold any ace while Europe would be able to cut access to liquidity to both government and banks. Hence a credible threat of Grexit would be needed. I thought and I still think, after the last”bail-out” of Greece, that this analysis is basically correct.

The problem with the euro zone is that it is deflationary. Whenever a crisis comes up, spending is cut. This can only lead to less demand during times of crisis, which is bad. Economists have learned that lesson in the Great Depression, when Germany’s unemployed voted a man to power who promised bread and jobs in 1933. It is sad that German politicians of today do not seem to understand that money buys goods and that there is something like a monetary circuit which is very important. Instead, they believe in morality and think that Germany is a victim.

In the following video, Lapavitsas talks about the new “bail-out” and the euro zone.